The U.S. dollar slipped broadly on Monday as investors worried that Washington was set to announce a new round of tariffs on Chinese goods in the latest escalation of the trade conflict between the world's two largest economies.
The euro was 0.5 percent higher against the dollar at $1.1683, while the greenback also lost ground against the Swiss franc and the British pound. The dollar was slightly lower against the Japanese yen.
U.S. President Donald Trump was expected to announce new tariffs on $200 billion in Chinese goods as early as Monday.
Last week, the U.S. Treasury Department invited senior Chinese officials, including Vice Premier Liu He, to more talks on the tariff dispute, though skepticism remained high among trade observers on both sides over the prospects of a breakthrough.
The dollar, which has benefited from safe-haven flows as the trade conflict has worsened, was on the defensive on Monday.
"Trade war headlines have lost the power to shock currency traders at this point," said Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto.
"At this moment we are seeing signs of increased tensions between the United States and China, but the reality is that Trump's negotiating room is becoming smaller by the day," he said.
"With midterm elections approaching, it is very unlikely Trump will be able to fully follow through on threats to really derail the Chinese economy," said Schamotta.
U.S. midterm elections are scheduled for Nov. 6, when Democrats need to pick up 23 seats in the House of Representatives and two seats in the Senate to gain majorities in Congress as they look to slam the brakes on Trump's agenda.
Speculators in the FX market have begun unwinding some of their short bets against the euro and sterling , Commodity Futures Trading Commission (CFTC) data released on Friday, showed.
Speculators' net long U.S. dollar positions fell to an eight-week low.
"The market also seems inclined to lock in dollar gains made since the spring ahead of next week when the Federal Reserve meets and is expected to raise interest rates for the third time this year," Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, said in a note. Emerging markets remained under pressure with MSCIs emerging market currency index down 0.19 percent, not far above a 15-month low hit last week.
The British pound rose, buoyed by reports of progress on the Irish border question, an obstacle to Brexit that diplomats will seek to overcome at a European Union summit later this week.